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Privatization Laws in Serbia – The Ins and Outs

November 17, 2017 by Nebojša Stanković

The new Law on Privatization that came into effect on August 13th 2014 is the new attempt of the Parliament of the Republic of Serbia to correct the previous mistakes and bring more effective investment solutions, so that they can create better conditions for economic development and social stability and save numerous companies from privatization. Here are the ins and outs of the new privatization law.

Enterprise Restructuring

The number of non-privatized socially owned enterprises in Serbia is low. These enterprises are in the process of restructuring, which represents a form of the legally impermissible state of positive discrimination of social property, with the goal of saving the existing enterprises from bankruptcy.

Enterprise restructuring is directed towards corporate societies which could not survive on the market due to debts to the state (unpaid taxes and unpaid earnings) and unpaid debts to creditors (other companies). That is how the mid-phase was created, which was a forced move by the state that did not have the courage to let these enterprises go bankrupt.

Of course, only the worst cases entered the restructuring process – the enterprises in which no investors wanted to invest their capital. Everything else that was good was privatized.

Just one of the many examples is U.S. Steel that wanted to shut down Železara Smederevo because, due to changes in market conditions, they did not have business interest in creating losses. In this situation, the Government of Serbia bought the shares of Železara for 1 Euro in order to, with the goal of preserving social peace, save jobs and have the time to find a new strategic partner.

Privatization Models

Privatization models, in accordance with the Article 2 of the new Law on Privatization are: the sale of capital, the sale of assets, strategic partnership, and the transfer of capital free of charge.

The Implementation of Privatization

This law enforced changes in the initial price for the sale of capital or assets which must not be lower than one half of the estimated value of capital or assets. Furthermore, the new starting price at the second collection of bids and the second public bidding must not be lower than one third of the estimated value of capital or assets.

In accordance with Article 2 of the Law on Privatization, prior to concluding an agreement, the Agency should obtain from the competent anti-money laundering (AML) organization an opinion on the interferences that the buyer or strategic investor may encounter when concluding an agreement. This opinion must be submitted no later than 15 days from the day of receiving the request from the Agency.

No later than 3 days after concluding the agreement, the Agency must submit to the competent organization for preventing money laundering a written notice informing them of the conclusion of the agreement with a buyer, as well as submit a written notice of payment no later than 3 days from the day of the payment of the purchase price.

The Agency should also, “at the request of the competent authority for the prevention of money laundering, without delay, make available, that is, submit all the documentation at its disposal that was created in the process of concluding the agreement or in the process of implementing the agreement, and act upon the instructions received by the competent authority“ (Article 13, Law on Privatization).

Privatization should represent a motive for foreign investors to invest and, with the purchase of the capital of one company, start operating in the territory of Serbia. Until the new Law on Privatization came into effect, the basic methods of privatization in Serbia were auction and tender, neither of which ever showed good results. The new Law on Privatization is expected to solve the question of all those enterprises that have not yet been privatized.